Advertising decisions must be made each period for each of your marketed brands. Indeed, the practice in Markstrat is to advertise on brands rather than on company names. As a consequence, even if your firm markets several brands, possibly to the same consumer segment, these brands will not benefit from the company’s identity and image.
The primary objective of advertising is to build awareness for brand names and to make consumer familiar with the characteristics and price of your product. Advertising is crucial for new brands, but is also important for brands that have been on the market for some years. Indeed, consumers tend to forget about a brand in the absence of advertising.
Another objective of advertising is to develop demand for the whole market. Indeed, as potential consumers become more familiar with the products and their characteristics they are more likely to purchase one of them. The size and growth rate of consumer segments is influenced by the amount spent in advertising by the entire industry.
Finally, advertising will influence the decision of whether or not distributors will carry your products. Spending more in advertising will most likely increase your distribution coverage. It also creates a barrier to entry for your competitors.
The absolute amount of advertising spent on your brands is a key factor in the success of your campaign. But because of the competitive nature of the Markstrat industry, your advertising share of voice is important as well. The share of voice is calculated by dividing your own advertising budget (usually several million dollars for a given brand and period) by the industry total advertising budget. A share of voice greater than the ones of your direct competitors is required for a successful new brand launch or for brand repositioning.
There are two separate advertising budgets: advertising media and advertising research. As its name indicates, the advertising media budget is used to purchase media space and time. Advertising research is about the creative work, media selection, or other activities conducted by advertising agencies, that improve the quality and the persuasive power of your message.
If your objective is to increase or maintain awareness, you should spend the bulk of your budget in media space purchase and only a small percentage in advertising research to make your advertising more effective (for instance 4% to 8%). If your objective is to reposition a brand, i.e. to change consumers’ perceptions, then you should spend a significant percentage of your total budget in advertising research (usually from 10% to 15%). In past years, companies have devoted on average 4% of their total advertising expenditures to advertising research.
You are also required to specify which segments should be targeted with your advertising. This decision should be consistent with the marketing strategy of your firm and/or brand. The advertising agency will select the most appropriate vehicle for the targeted segments (for instance, targeting Professionals through specific magazines, professional associations or on trade-shows). Because media selection is not an exact science, some consumers may be exposed to your advertising campaign even if you do not target them explicitly.
Finally, you must define perceptual advertising objectives for each brand. This enables you to convey a perceptual message and emphasize, for instance, that a given brand is very powerful or that another one has a very large display and many features. You will learn more in the Repositioning section at the end of the handbook; it is devoted to brand positioning through advertising and explains how to set perceptual objectives.
Advertising budgets must be entered each period in the Marketing Mix decision form. Both the advertising media and research budgets must be given in thousands of dollars. You must also indicate the proportion of the budget targeted to each segment. The percentages must add to 100%.